A commentary on insurance coverage issues in Hawaii and beyond

January 2020

January 29, 2020

HB No. 2320, a revision to the Hawaii Insurance Code to regulate public adjusters, has been introduced before the Hawaii Legislature. The bill is here.

The bill would require a public adjuster to enter a written contract for services which would, among other things, describe the loss and its location, describe the services to be provided to the insured, attest that the public adjuster is fully bonded, disclose the full compensation the public adjuster is to receive, and state that initial expenses to be reimbursed to the public adjuster from any claim payment.

Public adjusters would not be entitled to a fee of more than eight per cent of any recovery from the insurance company. If the insurer paid policy limits within seventy-two hours after a claim was submitted or committed in writing that payment would be made for the policy limits, the public adjuster would not receive a commission based upon a percentage of the total recovery from the insurer. Instead, the public adjuster would only be entitled to reasonable compensation from the insured for services provided.

The public adjuster would be required to provide to the insured with a written disclosure concerning any financial interest that the public adjuster might have with other parties involved in any aspect of the claim, including any construction firm or building appraisal firm that is to receive any compensation for assisting with the claim.

The bill would give the insured the right to rescind the contract within three business days after the date of signing the contract.

Finally, compensation provisions in a public adjusting contract would be made available to the commissioner upon request.

The first hearing on the bill will be Thursday, January 30, 2020 at 2:30 p.m.

January 27, 2020

The 32nd annual ABA Insurance Coverage Litigation Committee CLE seminar is rapidly approaching. The conference will be held in the foothills above Tucson from March 4-7, 2020. The brochure with details and the full seminar schedule is here.

As always, this is a don't miss event for insurance practitioners, including lawyers, judges,and those working in the industry. Seminar topics will include the new Restatement of the Law of Liability Insurance, coverage arguments in mediation, indemnification and insurance clauses, important insurance decisions of 2019, and much more. I will join a panel discussing Procedural Bad Faith - The Latest Trends, which which will include a discussion on the recently issued Adams v. Hawaii Medical Service Association, 450 P. 3d 780 (Haw. Sept. 30, 2019).

January 22, 2020

The district court granted the motion to remand due to lack of subject matter jurisdiction because the insurer did not sufficiently establish that the amount in controversy was above $75,000. Caceres v. Scottsdale Inc. Co., 2019 U.S. Dist. LEXIS 209688 (S.D. Fla. Dec. 5, 2019).

Hurricane Irma damaged plaintiffs' home. They notified Scottsdale, their insurer under their 2017 policy. Scottsdale issued a check for $10,975.00, after taking out the wind deductible of $5,853.68. Under the renewed 2019 policy. plaintiffs reported property damage to Scottsdale due to heavy rain and a roof collapse. Scottsdale issued a check for %7,975.04.

Plaintiffs then presented to Scottsdale a repair estimate for $91,862.51. The estimate listed September 10, 2017 as the date of loss, but also listed the claim submitted in 2019. The repair estimate covered the estimated damages for both claims.

Plaintiffs then sued in state court for damages in excess of $15,000. Scottsdale removed the case to federal district court, alleging the amount in controversy was $75,033.83, based on the $91,862.51 repair estimate minus the $10,975 paid for the 2017 claim and the $5,853.68 wind deductible. Plaintiffs sought remand arguing: (1) Scottsdale could not use a pre-suit damage estimate as a basis for establishing the amount in controversy; and (2) even using the pre-suit damage estimate, Scottsdale failed to account for the second check paid to Plaintiffs, which would decrease the amount in controversy from $75,033,83 to $67,058.79.

The court first determined that a pre-suit estimate of repairs could be used to determine whether the suit had been properly removed. It was undisputed that Plaintiffs' total estimate of damages for both claims was $91,862.51. But the parties disagreed as to which check amounts should be subtracted from the $91,862.51 in determining the applicable amount in controversy. The court determined that the amount in controversy, which was based upon the combined $91,862.51 damage estimate, had to account for all payment and deductibles applied in connection with the 2017 and 2019 claims. Thus, the amount in controversy was $67,058.79.

Scottsdale also added Plaintiffs' anticipated attorneys' fees to establish the amount in controversy. The amount in controversy did not include highly speculative, prospective amounts of attorney's fees, but rather included only those fees accrued as of the time of removal. Further, Scottsdale presented no evidence to establish that Plaintiffs had accrued $7,941.21 in attorneys' fees as of the time of removal. Therefore, the court concluded it did not have subject-matter jurisdiction over the case.

January 20, 2020

The Ninth Circuit reversed the District Court's denial of a defense based upon ambiguous allegations in the underlying complaint. Pulte Home Corp. v. TIG Ins. Co., 2019 U.S. App. LEXIS 35988 (9th Cir. Dec. 4, 2019).

Pulte Home Corporation sued TIG for failing to defend in two lawsuits brought by homeowners alleging construction defects. The district court granted summary judgment to TIG.

The underling allegations at least arguably brought the occurrence within the policy's coverage. The complaints' allegations were so ambiguous or incomplete that the property damage could have arisen out of ongoing operations, thus triggering the duty to defend. The underlying allegations did not specify when or how the property damage occurred, other than to say that it a rose out the original construction.

The policies did not require property damage to "manifest" during the policy period. Rather, the property damage had to simply occur during the policy period, no matter when it became apparent to the homeowners. Nor did the policies provide that coverage for occurrences during ongoing operations would cease after a subcontractor completed its operations. Given the vagueness of the underling complaints, TIG failed to meet its burden to prove without dispute that the business-risk exclusions applied.

Chelsea Piers was an additional insured on policies issued by Colony to EPS Iron Works, Inc. The court previously denied Colony's motion for summary judgment and granted summary judgment to Chelsea Piers, establishing Colony's duty to defend and to reimburse for past defense costs. Colony, however, failed to reimburse Chelsea Piers for its defense costs.

Colony did not dispute that the prior order required it to reimburse Chelsea Piers for past defense costs and defense costs going forward. Nor did Colony challenge the reasonableness of the hours and tasks billed by defense counsel. Rather, Colony contested only the reasonableness of Rivkin Radler's (defense counsel) hourly rates.

Colony, however, did not move for a reasonableness hearing on the hourly rates. And Colony did not put forth any evidence suggesting that Rivkin Radler's hourly rates were unreasonably high - not merely higher than Colony would prefer to pay. The court determined that Colony was not entitled to disregard a court order from which it never sought to pay.

Colony waived any challenge to the reasonableness of Chelsea Piers' defense costs incurred up to the date of this order. Colony was ordered to pay all defense costs that Chelsea Piers had incurred prior to the date of the order, and for which Chelsea Piers had already provided Colony with property documentation.

On certain days in June and July of 2013, the insured had no telephone service at its offices. A claim for loss of business income was filed under its commercial property policy issued by Hanover. The insured was compensated with $12,069.88 under the policy. Hanover claimed this was full compensation for what was owed under the policy. The policy contained a 100% co-insurance requirement.

The insured sued for breach of contract and reformation of the policy, specifically the 100% co-insurance requirement. Hanover moved to dismiss the reformation count in the complaint.

The court found that the insured failed to state a claim for reformation based on mutual mistake. A claim for mutual mistake required allegations indicating that the parties had reached an oral agreement and, unknown to either, the signed writing did not express that agreement. The complaint failed to identify the existence of a single mistake, much less a mutual one. While the insured's president may have unilaterally misunderstood the parties' agreement, this did not provide a basis for reformation.

Nor did the record disclose any fraudulent or negligent misrepresentation on the part of Hanover. There was no allegation that Hanover was ever requested to change the policy coverage from the 100% co-insurance requirement that was originally provided and existed for many years, to a new policy without the co-insurance requirement. The policies dating back to 2009 all contained the 100% co-insurance requirement. The insured received the policy it ordered and had ample opportunity to correct it after its issuance and before the loss. Accordingly, the motion to dismiss the reformation count was granted.

January 08, 2020

Coverage for a serious bodily injury was barred under the policy's watercraft exclusion. United States Fire Ins. Co. v. Hawaiian Canoe Racing Ass'n, 2019 U.S. Dist. LEXIS 207564 (D. Haw. Nov. 27, 2019). A related case involving the accident and addressing coverage issues under a policy issued by Great Divide Insurance Company was previously posted here.

The Hawaiian Canoe Racing Association (HCRA) was a sponsor of the 2016 Pailolo Challenge Outrigger Canoe Race on September 17, 2016, from Kapalua, Maui to Kaunakakai, Moloka`i. Mark Stevens agreed to provide and operate an escort boat, the Ohana, for one of the teams. Before the Ohana began escorting the underlying plaintiff's team to the staging area, Steven's hat flew into the water. The underlying plaintiff went into the water to retrieve the hat. As she re-entered the boat from the rear, the Ohana reversed and a propeller struck the plaintiff, causing significant injuries. Her left leg was eventually amputated.

The plaintiff sued Stevens, alleging he was negligent or grossly negligent in operating the Ohana. HCRA was also sued for negligence and for failure to obtain sufficient liability insurance prior to the event.

HCRA tendered to its insurer, U.S. Fire, who had issued a Marine Policy. Coverage was denied. U.S. Fire sued for a declaratory judgment and moved for summary judgment.

U.S. Fire argued that Watercraft Exclusion A applied because the bodily injury arose out of the use of the Ohana, a watercraft. The exclusion applied if the watercraft was either owned by, operated by, rented to loaned to or chartered to an insured. The court found that an insured from HCRA contracted with Stevens to secure his operation of the Ohana as an escort boat. The injuries, occurring when the underlying plaintiff re-entered the Ohana, arose from the operation of the Ohana.

The court found that the Ohana was chartered by an insured, an individual from HCRA. The policy also included a Charterer Endorsement which provided coverage for the claims alleged in the underlying action if the Ohana was one of the covered watercraft under the policy and none of the exclusions applied. The Ohana, however, was not listed as a covered watercraft, so the Charterer Endorsement did not apply.

The court therefore found that, as a matter of law, U.S. Fire did not have a duty to defend, nor a duty to indemnify HCRA or any other insured in the underlying action.

January 06, 2020

The federal district court found there was no coverage for injury caused by an explosion at a recycling facility. Mountain West Farm Bur. Mut. Ins. Co. v. Jackson, et al., 2019 U.S. Dist. LEXIS 202319 (E.D. Wash. Nov. 21, 2019).

Tim and Roberta Jackson owned Ibex Construction, located in Spokane, Washington. The Jacksons contracted with Reinland Auctioneers to clear the Ibex Construction property of scrap metal and old equipment. Reinland contracted with Gordon Beck to remove certain pieces of scrap metal from the property. Beck loaded the bigger pieces of scrap metal, including a 55-gallon unmarked metal tank, into a dump truck. After the truck was driven to the recycling facility, the metal, including the unmarked tank, was loaded into a crusher. When the tank was crushed, it exploded and chlorine gas was released, causing considerable injuries and death to nearby persons working at the recycling facility.

Suit was filed by an individual injured in the explosion against many defendants, including the Jacksons. The Jacksons had a policy from Mountain West for insured locations. The policy defined "insured locations" as all locations shown in the Declarations where a farm or residence premises was maintained.

Mountain West filed a declaratory judgment action against the Jacksons and moved for summary judgment. The court found that "insured location" required that the covered locations be shown in the Declarations. The only location shown in the Declarations was a residence of the Jacksons in Montana. The Spokane property was not covered because it met the definitions of "locations not Insured," i.e., any location that the insured owned, rented, leased or controlled, other than the "insured location." While the Jackson's owned the Spokane property where the tank was located, that property was not an "insured location" and the exclusion applied.

Consequently, there was no coverage for any claim against the Jacksons as a result of the explosion that occurred in Spokane, Washington.